Public Law, Project Finance and Regulatory

São Paulo ups capex for Intercidades rail PPP to US$2bn

São Paulo state’s metropolitan transport department increased the capex for a public-private partnership to build and operate the Trem Intercidades passenger rail project to 10.2bn reais (US$2.04bn) from 8.5bn reais amid cost pressures.

The concession contract will also increase, to 35 years from 30, a transport department spokesperson told BNamericas.

Although the state government did not give the reasons behind the capex increase, Brazil’s inflation has spiked and several stakeholders in the infrastructure sector have complained about higher costs.

“The capex revision is natural, considering the rise in prices in general, and the need to avoid future discussions about contract readjustments,” Paulo Dantas, an infrastructure and project finance specialist at law firm Castro Barros Advogados, told BNamericas, underlining that even with increased costs if the project is well structured it is likely to attract private sector operators.

São Paulo state is planning to publish the notice for the PPP in April, instead of March as previously expected, due to the capex change, said the spokesperson.

According to the president of rail equipment manufacturers’ association Abifer, Vicente Abate, the cost pressures affecting the rail segment are mainly related to steel prices.

“The industry in general was already getting used to a high level of inflation since last year, but the war between Russia and Ukraine brought unexpectedly severe pressure on steel prices, which is an important input for the sector,” Abate told BNamericas.

The first phase involves a 101km line connecting state capital São Paulo with the city of Campinas to the northeast, while the second phase will involve extending the line to the city of Americana.

Of the total capex, 1.8bn reais are earmarked for acquiring rolling stock, 2.6bn reais for modernizing line No. 7 (ruby), and 5.8bn reais for infrastructure, including the new line.